A Chequer-Board of Nights and Days

Bank of America Chief Executive Officer Kenneth Lewis called the tax "unfair" in a memo to employees yesterday, while Citigroup's Vikram Pandit said his bank is "working in every appropriate way with policymakers." JPMorgan's Jamie Dimon held a conference call with about 200 executives, saying the firm is concerned about retention and is working with lawmakers.

The banks are responding to an outcry in Congress over $165 million in bonuses paid by American International Group Inc. after the insurer received $173 billion in federal bailout funds. The Senate will vote next week on levies on bonuses after the House of Representatives approved a 90 percent tax on bonuses at companies that received bailout funds.

"People are very anxious about this getting too widespread, this notion that no one on Wall Street or in banking deserves any money," said Seamus McMahon, a consultant with Booz & Co. in New York, who works with financial firms.

Banks, worried that the proposals are distracting employees, are trying to reassure staff and keep them focused on clients. Lewis said the taxes could cause "unintended harm" and delay the recovery of the financial system. Dimon urged workers to call politicians and voice their opinions, a spokesman said.

[. . .]

"The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees," Pandit said in the memo, whose contents were confirmed by a Citigroup spokesman.

Can there be any doubt whatsoever that talented people will indeed avoid working at companies that have received taxpayer aid because their ability to earn will be severely circumscribed at such companies? And of course, the irony is that such companies are in the most need of talented people to pull them out of their current parlous states and get them off the taxpayer dole. More here:

Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.

Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the "anti-American" measures smacked of "a McCarthy witch-hunt" that would send the country "back to the stone age".

There were fears that the backlash triggered by AIG's payment of $165m in bonuses to executives responsible for losses that forced a $170bn taxpayer-funded rescue would have devastating consequences for the largest banks.

"Finance is one of America's great industries, and they're destroying it," said one banker at a firm that has accepted public money. "This happened out of haste and anger over AIG, but we're not like AIG."

[. . .]

In Frankfurt one employee at a US investment bank said the new tax measures would "send [the US] back to the stone age".

"Commodity traders are already moving to companies like BP where they can make as much money as they used to," said another banker at a US firm.

Bankers at Deutsche Bank said it could benefit from the proposed legislation by poaching its US rivals' most talented employees.

Unfortunately, it would appear that those on the port side of politics don't appreciate the fact that financial incentives are oftentimes needed to ensure that people not only work, but do a good job as well. These people have been going on and on and on about "exorbitant salaries and bonuses" for an exceedingly long time and one can almost smell their anticipation in ensuring that salaries and bonuses get clawed back. The problem is that they will help ensure that companies currently on the public dole will not get the smart people they need in order to thrive again. And, as referenced in the excerpt above, what is to stop those smart people from going to work for companies overseas that will allow them to make more money and avoid the quasi-punitive taxes and restrictions that increasingly appear likely to come over the horizon and regulate pay and bonuses here? Of course, once this happens and Congress and the Obama Administration notice that members of the business community are taking jobs in overseas firms that will be exempt from Washington's efforts to regulate pay and bonuses, they will likely then make noises about the lack of "economic patriotism" amongst members of the business community. You cannot win with these people.

It is not difficult to conclude that the rhetoric from Washington is directly responsible for things like this:

Pillars of the community are now pariahs fearing for their safety in a ritzy area of Connecticut home to many executives at American International Group Inc. (AIG), hit with a backlash over bonuses it paid to top brass even as it accepted federal bailout money.

The payouts to executives appear to have helped put a face on the economic struggles the country faces, and the anger targeting AIG is palpable. Death threats have been pouring in since the brouhaha broke, the company said, and its workers are taking no chances.

"It's scary," one executive said, speaking on condition of anonymity because he feared retribution. "People are very, very nervous for their security."

The funny thing, as we all know now, is that guarantees for bonuses were inserted into the stimulus package by Chris Dodd, the senior Democratic Senator from Connecticut, at the behest of Treasury Department officials. The late outrage over this fact would appear to constitute yet more evidence that no one actually took the time to figure out what it was that they were voting on when it came to the stimulus package. It is unbelievably embarrassing for the Obama Administration and for Congressional Democrats to wax outraged over the payment of AIG bonuses . . . only to find out that they were responsible for the fact that those bonuses had to be paid out in the first place. Wasn't this new Administration supposed to work hand-in-hand with Congress to teach us the meaning of competence, after all?

Unfortunately, it would appear that courts will not help us get out of this mess, despite the fact that the exorbitant tax bill that was passed in response to the payment of AIG bonuses was a clear and obvious bill of attainder (yes, the language was written generally so as to avoid appearances of a bill of attainder, but we all know what was going on, don't we?). The only way to stop policies that will, indeed, take the business environment here in the United States back to the Stone Age is to vote out the people determined to exalt Neanderthal thinking when it comes to economic policy. 2010 is the first opportunity we will have to pull back the country's march to an economic Stone Age. It cannot come fast enough.